• May 1, 2013
  • By Leonard Klie, Editor, CRM magazine and SmartCustomerService.com

Price Shapes Satisfaction

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Pricing can make or break the customer experience, but most companies don't use their voice of the customer (VoC) programs to uncover customers' perceptions of it, according to a recent report from Forrester Research.

That's valuable information, given that in today's economy, customers' perceptions about their experiences with brands are largely affected by pricing, suggests Forrester senior analyst Maxie Schmidt-Subramanian in the report "How CX Professionals Can Use VoC to Surface Pricing Issues."

"Pricing decisions set customers' expectations for the experience, which helps drive both satisfaction and loyalty," she says.

She notes that in the most recent Forrester Customer Experience Index, companies that position themselves as value brands, including Marshalls, JetBlue, Southwest Airlines, and Courtyard by Marriott, took 10 of the top 13 spots this year.

This suggests that companies must strike the right balance between price and customer experience. Key to that balance are the following five elements, which Schmidt-Subramanian says shape customer perception of a company's pricing:

  • price-quality ratio;
  • price reliability (including timely communications about price increases and an absence of hidden fees);
  • relative price, compared to competitors;
  • price fairness (whether the costs can be justified); and
  • price transparency.

Additional research from LivePerson finds that unexpected delivery costs were the key reason for 71 percent of online shopping cart abandonments.

"Price is not just a price tag. It is also about fees, discounts, bundles," Schmidt-Subramanian says. "This is where customers often feel the pain of pricing."

But companies typically don't find out about customer issues with pricing until after the fact, when they filter in through the call center or social media. Often, by then, it's too late. As an example, Schmidt-Subramanian cites the consumer backlash that took place in 2011 when Bank of America added a five-dollar debit card fee, causing many customers to close their accounts.

German passenger rail line Deutsche Bahn suffered similar customer resistance when it increased its ticket prices by just a few percentage points and then added a service fee of 2.50 euros for people buying tickets at the counter. When the press exposed that mostly senior citizens—who could least afford the service charge—were the ones who bought tickets at the counter, the company rescinded the service fee.

What companies really need to do to uncover pricing issues, Schmidt-Subramanian adds, is mine unstructured data, conduct qualitative research, and survey customers. Additionally, they need to examine customer journeys to see where customers encounter pricing decisions, look at the context in which they perceive pricing, uncover the drivers of price satisfaction, and monitor price changes over time to see how they correlate with overall customer satisfaction and brand perceptions.

And this needs to take place "continuously," Schmidt-Subramanian urges, because "once pricing changes are imminent, it's often too late," but also because "customers' needs and what in pricing they find acceptable can change over time."

What you ask is as important as when. "If customers were asked directly whether they want the price to be higher, they will, of course, say no. So don't ask that question," she says. "Instead, understand how customers currently perceive the price" relative to value, fairness, and the other five elements.

She also warns against trying to compete solely on price. "Delivering a superior customer experience can trump pricing as a loyalty driver, while too strong a focus on pricing doesn't necessarily buy loyalty [and] can even decrease it," she says. That's because for competitors, "a low price is much easier to imitate than a great customer experience."

But that's not the only reason. "Companies with a very specific value proposition often get a chance to attract a segment with a higher willingness to pay," Schmidt-Subramanian says, noting that Whole Foods Market, for example, "attracts health-conscious consumers that are not looking at the price first."

In the end, she suggests that companies look to deploy any of the number of tools "that help tease out what customers really think about pricing, that help understand the value they see in a product or service and pricing's true impact on purchase decisions.

"Unfortunately, CX pros can't always influence pricing decisions, but sometimes they can minimize the ill effects of pricing decisions that customers won't like," Schmidt-Subramanian concludes.

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